The exchequer is currently generating record revenue from capital gains tax (CGT), driven by increased rates, reduced tax-free allowances, and rising asset values.

CGT is applicable on profits made from selling or giving away assets, such as stocks outside of a tax-advantaged account, art, jewelry, classic cars, or non-primary residence real estate. According to the Institute for Fiscal Studies, approximately 350,000 individuals pay CGT annually.

In the last decade, the Treasury has significantly increased its CGT collections. For the financial year 2024-25, it’s projected to receive £15.7 billion, a sharp rise from £3.91 billion in the year 2013-14. By the conclusion of this parliament in 2029-30, the CGT revenue is anticipated to reach £25.5 billion.

Several factors contribute to this growth trend: in October’s budget, the government raised CGT rates on assets, other than residential property, from 10% to 18% for basic-rate taxpayers, and from 20% to 24% for higher-rate taxpayers, aligning them with property gain rates.

The annual tax-free allowance, the threshold at which CGT applies, has gradually decreased from £12,300 in 2022-23 to £3,000 in the current year. A basic-rate taxpayer with a £20,000 gain on shares in 2022 would have owed £770 in tax but will now face a £3,060 tax bill; similarly, a higher-rate taxpayer with the same gain would have paid £1,540 before but now owes £4,080.

This situation is further exacerbated by decades of rising property and asset prices, making it easier for individuals to exceed the exemption threshold. Fortunately, there are methods to reduce or even evade CGT. Here are several strategies.

Utilize Time Wisely

The CGT allowance resets on April 6 with the new tax year, making it an opportune moment to strategize for tax mitigation. Nimesh Shah from the accountancy firm Blick Rothenberg noted, “This is one of those taxes where you can time it and decide when you pay.”

For those with the luxury of time, gradually realizing profits in yearly increments of £3,000 ensures you remain below the exemption limit, potentially avoiding tax altogether. This approach could involve selling shares in smaller portions rather than liquidating a complete portfolio. Alternatively, you could sell individual artworks or jewelry over a span of years instead of all at once.

However, this strategy may not apply to certain assets like property, which necessitates selling for large gains in one transaction. Immediate cash needs can also make this approach less feasible.

Seek Shelter

Every individual can contribute £20,000 annually into an Individual Savings Account (Isa) and up to £60,000 per year into a pension without incurring CGT on any returns.

Once these allowances are exhausted, consider Premium Bonds. Jonathan Watts-Lay from Wealth at Work suggests, “While they don’t guarantee returns, you can deposit up to £50,000, and all winnings are tax-exempt.”

High-net-worth investors might also explore venture capital trusts, which allow investments of up to £200,000 a year in early-stage companies, with no CGT owed upon selling. However, such investments carry significant risk and may not be suitable for everyone.

Transfer to an Isa

Investments outside of an Isa or pension should be reconsidered for transfer. The “Bed and Isa” strategy allows you to sell non-Isa investments and simultaneously repurchase them within an Isa, ensuring that any future gains are tax-free. Another similar approach is “Bed and Pension.”

Watts-Lay mentions that this tactic also applies to those participating in Save as You Earn schemes, where employees buy company shares through their employer. Even modest savers may risk a tax bill if their share price climbs when they sell.

An “in specie” transfer facilitates the movement of shares from a workplace plan (with no tax protection) to an Isa (where gains are tax-free) without necessitating purchases and sales. “Once shares are sold from the Isa, no tax should be applicable,” explained Watts-Lay.

Offset Losses

Recent declines in the stock market have diminished the value of pensions and investments, creating discomfort for many savers while presenting a potential opportunity.

Andrew Tully from Nucleus Financial advises that capital gains and losses incurred within the same tax year can be offset against each other, and losses can be carried forward to future tax years.

Losses can be carried forward indefinitely but must be reported to HMRC within four years after the tax year in which the asset was sold.

Shah highlights that if an individual sold a buy-to-let property profitably while also experiencing investment losses, they could sell those losing investments to offset gains against their property sales to lessen their tax liability, with plans to repurchase the shares later.

Family Transfers

Spouses and civil partners can transfer assets between one another tax-free, effectively doubling the annual exemption. If one partner has already taken their £3,000 allowance but wishes to sell another asset, they can transfer it to their spouse, allowing the latter to use their own allowance. This can be particularly advantageous if one partner is a basic-rate taxpayer, leading to lower CGT.

In cases involving the sale of a second home co-owned by partners, each can benefit from £3,000 of profit tax-free.

However, only married individuals or those in civil partnerships benefit from these exemptions; transferring to other relatives will incur tax liabilities.

Attempting to sell or gift assets below their market value to avoid a tax bill is inadvisable, as HMRC assesses based on market value for CGT calculations, not the transaction amount.

Delay Sales

Is it necessary to sell? CGT is assessed only on realized profits — it is not applicable on unrealized gains. Postponing a sale to the next tax year can be an effective strategy for avoiding tax if you struggle to remain within your annual tax-free allowance.

While a sensitive topic, it’s noteworthy that CGT does not apply to an estate after someone’s death. This may not be a standard financial strategy, but couples where one partner has a significantly shorter life expectancy often transfer assets into their name, absolving them of CGT upon death.

Upon death, assets are evaluated at the time, and the beneficiary faces tax responsibilities on any gains from that date onward.